Here's my opinion about what's going on in Washington and what it means for the HVCC and why Dole's question to Bernanke is significant. It's really chaotic to say the least. As I'm sure most of you have read about in the news, right after the Senate passed its version of the housing reform bill last week, confidence in the stability and solvency of Fannie and Freddie took a sharp downward turn. Last Sunday afternoon Treasury Secretary Paulson announced a plan to provide a temporary increase in the line of credit the GSEs have with the Treasury. They were afraid investors might not buy $3B worth of bonds Freddie was preparing to sell on Monday morning. That was kind of spooky to think about what would have happened to the market if no one bought Freddie's debt. So, the Treasury and the Fed stepped in with what amounts to a "bridge-loan" offering to add confidence to the market. The plan also includes temporary authority for the Treasury to purchase equity in either of the two GSEs if needed, which has created quite a stir since Fannie and Freddie are public companies and any government equity investment would dilute other shareholders. That's people like you and me with mutual funds and 401Ks. It sucks, but bankrupting Fannie and Freddie isn't an option. Regardless, the plan would also give the Federal Reserve a "consultative role in the new GSE regulator's process for setting capital requirements and other standards." I interpret that as meaning if the Fed is going to bail out Fannie and Freddie, they're going to have a bigger say in how the GSEs operate going forward.
House Democrats intend to add this Treasury package to the housing reform bill that they have been working on with the Senate. They had hoped to bring the legislation to the House floor for a vote this week, but objections from Republicans in both the House and Senate slowed down the process. The current plan is for the House to vote on the combined measure next week. Assuming it passes, the legislation would go to the Senate for a vote. If the Senate passes the bill without making any changes, the bill would be sent to Bush. While the White House has signaled opposition to certain provisions that may be included in the housing bill, it is likely Bush would sign a bill that includes the Fannie/Freddie "rescue" plan. Frankly, I think Bush's hands are tied. He can't veto a bill that saves Fannie and Freddie.
Where does the HVCC fit into this mess?
Currently, there are no provisions for it in the original House housing bill (which was passed by the House prior to the release of the HVCC) or the Senate housing bill that passed in early July. During debate on the Senate floor, Dole offered then withdrew an amendment that would replace the HVCC with an APA-compliant federal rulemaking to establish appraisal standards. APA stands for "Administrative Procedure Act" which controls procedures and rulemaking in contested cases like the HVCC. In exchange for her agreement to withdraw the amendment, Senators Dodd and Shelby engaged in what's called a colloquy (a formal written dialog) on the Senate floor regarding the need for federal involvement in the process. We were bummed when Dole withdrew her amendment, and so were a lot of our customers. But, it was probably for the best, because Dole kept her powder dry, so to speak. Instead of her pressing it and getting it shot down, she traded it for a larger venue, which is good.
She got a separate, but big venue earlier this week. Day before yesterday, Federal Reserve Chairman Bernanke testified before the Senate Banking Committee regarding Fannie and Freddie and the proposed stabilization plan. At that hearing it was really cool to hear Dole raise the HVCC issue and you can tell from her question that our lobbyists had reached her with our talking points. They've been working with Dole's staff off and on over the past couple of months. Dole asked Bernanke what he intended to do to ensure that the HVCC doesn't further hurt the current housing crisis. Bernanke replied that he is well aware of the issue and is working to make certain that there are no inconsistencies between the HVCC and federal regulations. Frankly, I don't see how we could have hoped for a better exchange in terms of putting pressure on Cuomo and the GSEs to modify the current version of the HVCC. Even though the Fed, as well as the OTS, OCC, and NCUA had all issued written statements against the HVCC, in its current form, and asking it be withdrawn, Bernanke's answer to Dole's question totally reinforced the fact that the federal regulators don't want the HVCC implemented as it's currently written. It was a good day for our anti-HVCC efforts on Monday.
We've changed our talking points somewhat to make them current with all these recent problems with Fannie and Freddie. Not only will the HVCC hurt appraisers and home buyers, but it's our new position that it would hurt the health of Fannie and Freddie, too. If they go down, there's no telling what will happen to the housing market. The government won't let them go down...that was the point of Paulson's speech on the Treasury steps last Sunday afternoon. But, now that the Fed and Treasury are on board with bailing them out, they're going to have a stronger say in how they behave. And, they don't like HVCC.
Our lobbyists are pushing out these new talking points about the HVCC's adverse effect on Fannie and Freddie as I type and have been all week. This is to try to convince members of Congress that an HVCC-type provision like Dole's amendment (which we like) should be included in the final housing bill. They're focusing on people like Chairman Barney Frank, Dodd, Dole, Kanjorski, Bachus, and Childers, to name a few of the most important ones. Personally, the whole environment is so chaotic I'm not sure how effective their work will be this coming week. But, members of Congress all know that the regulators don't like HVCC and that now more than ever, the regulators have more stroke with how Fannie and Freddie are going to operate. So, it doesn't look good for the HVCC. At least today it doesn't. That could always change next week.
Here's a link to an update we sent out yesterday in case you didn't get it.
http://www.appraisalpress.com/news/articles/dole_bernanke/
Check back at appraisalpress.com from time-to-time for updates. We're doing our best to stay on top of things as they happen.
Thanks.
Scott Kinnaird
CEO
a la mode, inc.
